The global financial crisis, brewing for a while, really started to show its effects in the middle of 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. On the one hand many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world. The problem could have been avoided, if ideologues supporting the current economics models weren’t so vocal, influential and inconsiderate of others’ viewpoints and concerns. This presentation provides an overview of the crisis with links for further, more detailed, coverage at the end. A crisis so severe, the world financial system is shaken… Attached is a wonderful presentation by the wizard financial analyst and writer Arif Anees. Hope you'd all relish this rare stuff..

1. A.B.C. of The Global Financial Crisis 2008 [email_address] Making difference & creating inspiration through life changing presentations @ [email_address]

2. Faces of the CRISIS

4. Global Financial Crisis Dictionary 2008 Making difference & creating inspiration through life changing presentations @ [email_address]

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13. “ the elephant in the room”

19. Mortgage loan market in the U.S. – segmentation of the market Government guarantee and securitization GSEs- Fannie Mae, Freddie Mac… Private securitization market Countrywide financial, Bear Stearns, Lehman Brothers, Bank of America, Wells Fargo, Washington Mutual… Making difference & creating inspiration through life changing presentations @ [email_address] U.S. mortgage loan market “ Prime” LTV<80% FICO>660 “ Non-prime” “ Conforming” Principal < “ conforming” limit “ Jumbo” Principal > “ conforming” limit “ Near-prime” (Alt-A) LTV~80-90% FICO~581-659 “ Subprime” LTV>90% FICO<580

21. Mortgage loan market in the U.S. – types of products Making difference & creating inspiration through life changing presentations @ [email_address] Mortgage loans Fixed rate mortgage (FRM) Adjustable rate mortgage (ARM) Common ARM ARM payment option Interest only (I-O) ARM Hybrid ARM

29. Structured finance: the first round of securitization (schematic presentation) Mortgage loans Total value: $900.000 Mortgage loan portfolio can be divided into 9.000 bonds with $100 face falue. Different tranches of bonds carry different levels of risk depending on their seniority/subordination in debt repayment. 1. tranche (low risk) 3.000 bonds at $100 Coupon rate: 10 % 2. tranche (medium risk) 3.000 bonds at $100 Coupon rate: 15 % 3. tranche (high risk) 3.000 bonds at $100 Coupon rate: 20 % Securitization Mortgage backed securities (MBS) Demand: financial investors Supply: originators of mortgage loans Making difference & creating inspiration through life changing presentations @ [email_address]

31. Structured finance: The players in securitization Originator End borrowers Conduit/trust/ SPV/SPE/SIV Investment bank (underwriter) Rating agency Institutional investor End lenders Insurance company Broker Servicer $ $ $ $ $ Mortgages Mortgages MBS I&P ($) I&P ($) MBS, I&P ($) Financial returns ($) LEGEND KEY O&G – interest and principal SPV – special purpose vehicle SPE – special purpose enterprise SIV – special investment vehicle MBS – mortgage backed securities Founder: loan originator or investment bank Purpose: transfering ownerhship of claims (loans) and collateral (mortgages) in order to issue mortgage backed securities (bonds). Exposure of founder: implicit guarantee in case of large losses. Assigns credit rating to issued MBSs. Organizes issuing of MBSs and places MBSs to investors in financial markets. Broker places mortgage loans to borrowers for fee Manages the flow of interests and principal (I&P); usually, but not necessarilly the Originator Typically a specialized mortgage bank Mutual funds, pension funds, hedge funds… Can assume part of risks (insurance of mortgage loans, insurance of MBS returns). Making difference & creating inspiration through life changing presentations @ [email_address]

32. Structured finance: The second round of securitization Mortgage bonds Rating: AAA/Aaa Mortgage bonds Rating: AA/Aa2 Mortgage bonds Rating: A/A2 Mortgage bonds Rating: BBB/Baa2 Mortgage bonds Rating: BB/Ba2 Mortgage bonds Rating: B/B2 “ Equity” tranche Mortgage backed securities (MBS) Investment grade Speculative grade CDO Ratings: AAA/Aaa – BBB/Baa2 CDO Ratings: less than BBB/Baa2 Collateralized debt obligations (CDO) Investment grade MBS Other claims Making difference & creating inspiration through life changing presentations @ [email_address]

33. Structured finance: The third round of securitization… Making difference & creating inspiration through life changing presentations @ [email_address] A mil. $ question: if I am a sponsor bank of the SIV that issued CDO2, what is my risk exposure?

35. Structured finance: ratings of issued securities and types of claims for SIVs Making difference & creating inspiration through life changing presentations @ [email_address]

36. Structured finance: funding profile of SIVs and claims of ABCP conduits

39. Unreliable ratings of rating agencies in the MBS market

40. Transmission of risk aversion (1): From the RMBS to the CMBS segment… Making difference & creating inspiration through life changing presentations @ [email_address] Record drops in prices Record increases in risk premiums

41. Transmission of risk aversion (2): …from MBS to the entire ABS market… Making difference & creating inspiration through life changing presentations @ [email_address]

42. Transmission of risk aversion (3): …and even to corporate debt markets Making difference & creating inspiration through life changing presentations @ [email_address]

45. Transmission of the crisis to the interbank market – increase in credit and liquidity risks Making difference & creating inspiration through life changing presentations @ [email_address]

48. Bank capital write-downs and recapitalizations Making difference & creating inspiration through life changing presentations @ [email_address]

52. Conclusion: systemic risks in international financial system have increased Making difference & creating inspiration through life changing presentations @ [email_address]

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68. Recent ODA rise will be difficult to sustain Making difference & creating inspiration through life changing presentations @ [email_address]

74. Housing prices adjusted for inflation (GDP weighted averages for Euroland ) Source: OECD, DB Global Markets Research

75. Price-to-rent ratio Price-to-income ratio Source: OECD, DB Global Markets Research

76. Housing prices adjusted for inflation Source: OECD, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

77. Source: OECD, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

78. Source: ECB, Haver, DB Global Markets Research The cooling real estate market is likely to exert a drag on construction investment and consumption Making difference & creating inspiration through life changing presentations @ [email_address]

79. … and credit… Source: Bloomberg, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

80. … leading to a tightening of lending standards… Sources: Fed, ECB, GM Research Making difference & creating inspiration through life changing presentations @ [email_address]

81. … and in Euroland to an increase in bank lending rates Lending rates on new loans with 1-5 year fixed rates Sources: ECB, GM Research Making difference & creating inspiration through life changing presentations @ [email_address] Consumer credit Mortgages Small corporations Large corporations Feb 07 – Feb 08 +0.38bp +0.25bp +0.41 +0.77

82. Hunt for collateral widens Euroland sovereign spreads… Source: Bloomberg, DB Global Markets Research bp Making difference & creating inspiration through life changing presentations @ [email_address]

83. Source: Bloomberg, DB Global Markets Research … while policy divergence is creating exchange rate tensions Making difference & creating inspiration through life changing presentations @ [email_address]

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85. Despite rising profits, firms need credit to fund their growth Source: Haver, Bloomberg, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

86. Source: Eurostat, Haver, DB Global Markets Research Investment has benefited from buoyant export growth Making difference & creating inspiration through life changing presentations @ [email_address]

87. Source: Eurostat, Haver, DB Global Markets Research Recursive eur regressions suggest no major changes in coefficient Making difference & creating inspiration through life changing presentations @ [email_address]

88. Source: ECB, Haver, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

89. First-round impact on trade balance of the oil price surge since September 2007 Sources: IMF, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

90. Falling terms of trade hurting consumer Source: Haver, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

91. Retail sales plunge as surging food and energy prices tax consumers Source: Haver, DB Global Markets Research Making difference & creating inspiration through life changing presentations @ [email_address]

92. Source: ECB, OECD, Haver, DB Global Markets Research Headline inflation boosted by food and energy Wage inflation remaining contained

93. Source: DB Global Markets Research

94. Source: DB Global Markets Research

121. Sign of Economic Recovery Real GDP growth Making difference & creating inspiration through life changing presentations @ [email_address]

125. Thanks Making difference & creating inspiration through life changing presentations @ [email_address]